Local biotech IPO class of 2010 is thriving

A trio of Cambridge biotechnology companies that went public in 2010 are bucking the conventional wisdom that it’s tough for investors to make money on the biotech IPO market. Aegerion Pharmaceuticals Inc. (Nasdaq: AEGR) and Aveo Pharmaceuticals Inc. (Nasdaq: AVEO) have both seen their stock more than double since their IPOs. Aegerion closed at $19.85 on May 10, up from $9.70 when it debuted on the Nasdaq in October 2010, raising $47 million in its IPO. Aveo raised $81 million when its stock launched in March 2010 at $8.25; its stock closed at $16.90 on May 10. The third in the group, Ironwood Pharmaceuticals, (Nasdaq: IRWD), raised $187 million when it went public in February 2010 at $12.40, making it the second largest biotech IPO in the country last year. Ironwood is up more than 20 percent since its IPO, closing at $14.95 May 10.

The three companies have something important in common — late-stage drug candidates that are likely to be sent to the U.S. Food and Drug Administration for approval within the next year, shortening investors’ time horizon for a major company catalyst.

“I don’t believe the biotech IPO market is really open now, and I don’t believe it was open in October when we went public,” Aegerion CEO Marc Beer said. Beer said he decided to take the plunge despite a hostile landscape because he believed it was actually easier to raise money in the public markets, rather than the private markets, where the lengthy recession has kept venture capitalists stingy. Beer said that while he did not actively go out and look for venture money, he said VC firms’ recent tendency to push down company valuations would have likely resulted in half the haul the IPO brought in.

“But you’ve got to believe you deserve to go public,” Beer said. The company has a promising experimental phase 3 drug candidate for a rare, genetic type of hypercholesterolemia, an extremely high lipid disorder that usually kills patients by the age of 30, causing both strokes and heart attacks. The company estimates that there are 3,000 patients in the U.S. with the disease, and another 3,000 across the five biggest markets in Europe. Beer said the drug would be priced at somewhere between $100,000 and $300,000 per year, and that a survey of insurers and governments has shown that payers are willing to reimburse for the drug at prices in that range. Aegerion does have potential competition from Cambridge-based Sanofi subsidiary Genzyme Corp., which also has a phase 3 drug candidate in development. Aegerion’s experimental therapy is a daily pill, versus Genzyme’s injectable drug candidate. Genzyme often has a leg up on rivals with no previous experience in the unique marketing strategy needed to sell rare disease drugs, but Aegerion is different. That’s because Beer previously served as Genzyme’s vice president of global marketing from 1994 to 2000.

The buzz over Aegerion’s neighbor, oncology company Aveo, has intensified in recent days after the company announced it would delay results from its phase 3 cancer trial until the fourth quarter, because patients were living longer than expected. The drug candidate, called tivozanib, is being tested in a head to head study against an approved drug, Nexavar, marketed by Bayer Healthcare, to treat renal cell carcinoma. So it’s not clear yet whether the patients living longer are those on tivozanib or Nexavar.

“We also regained worldwide rights to a second product in September, so the profile of our company changed, from investors’ perspective, away from just a one-product company,” Aveo CEO Tuan Ha-Ngoc said. The product is an antibody candidate that may play an important role in tumor growth, and has benefited from more than $100 million in investment already from Aveo’s partner, Merck and Co. (NYSE: MRK).

Ironwood is playing in a large therapeutic market that could be worth up to $6 billion per year, irritable bowel syndrome.

“More than 10 million patients out there are seeking treatment and are not satisfied with the treatment they are getting,” Ironwood CFO Michael Higgins said in March at the Cowen and Co. health care conference, which was held in Boston. The company released positive results from a second phase 3 trial in November, which showed that the drug candidate, called linaclotide, both relieved constipation and had a significant impact on relieving pain associated with irritable bowel syndrome. Analyst Gregory Wade from Los Angeles-based Wedbush Securities has a top sales figure for the drug, if approved, of $2.4 billion annually. Wade said that the closing of the biotech IPO window during the recession weeded out earlier stage, riskier companies, and Ironwood and its peers are benefiting from a winning combination for IPO success.

“It seems that we’ve come to a point where the initial valuations are low enough, and the companies are far enough along in their drug development, that investors are actually able to make money on biotech IPOs.”